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The founder of a start‐up (principal) who has a project with uncertain returns must retain and incentivize an agent using promise of future payments and information gathering. The agent's effort incrementally advances production and such advance is a prerequisite for gathering new information. The principal decides how much information to gather based on these incremental advancements. The principal faces cash constraints. The agent's outside option is large relative to his effort cost. Equilibrium features one of two outcomes: immediate learning, whereby the agent's compensation is low, learning is immediate and retention is possible only conditional on the project being of high quality; or gradual learning, whereby the agent's compensation is high, learning is gradual, the agent never quits and effort is inefficiently high.

This study uses an information-asymmetry framework to examine the effect of initiation of credit default swaps (CDS) trading on firm dividend payout policy. We find evidence that CDS initiation is associated with increasing dividends, which is consistent with firms distributing excess free cash flow to mitigate exacerbated manager-equityholder agency conflicts resulting from reduced monitoring by banks following CDS initiation. Additional findings support this explanation by showing that the dividend increases are concentrated among borrowing firms with higher agency cost before CDS initiation, among firms whose lead arranger banks have a relatively less strong reputation in the loan-syndication market, and among firms whose loans are subject to less intense monitoring features—that is, less restrictive loan covenants—following CDS initiation. Additional analyses also suggest that inferences are robust to controlling for the potential effects of CDS initiation on capital structure. This paper was accepted by Brain Bushee, accounting. Funding: Financial support from the Goizueta Business School, the Kenan-Flagler Business School, and the Business School UNSW Sydney is gratefully acknowledged. Supplemental Material: The data and internet appendix are available at https://doi.org/10.1287/mnsc.2022.4337 .

Problem definition: This paper investigates and compares two types of food safety auditing structures: decentralized and centralized audits. Academic/practical relevance: Decentralized food safety auditing systems are common among developing economies, that is, different tiers of a food supply chain are audited by separate government agencies. Such an auditing structure has been widely criticized as ineffective at mitigating food safety risks. Some developing countries began implementing centralized auditing systems as a remedy for the mis-coordination across local auditing agencies. We compare food safety outcomes and economical payoffs of the two auditing systems. Methodology: We study a parsimonious game-theoretic model of a one-supplier, one-buyer supply chain and two agencies auditing each tier of the supply chain, respectively. Under decentralized audits, each of the two agencies minimizes its individual cost, and their decisions are sequential; under centralized audits, the agencies minimize total agency cost and make auditing commitment up front. Results: We identify forces that drive equilibrium decisions under decentralized audits. The penalty-shield effect of an agency’s auditing capability may lead to risky behavior by the supplier. The free-riding effect between the two agencies may lead to less auditing. A centralized commitment makes the agencies the leader in the game at the expense of them losing the flexibility to respond to the actions of supply chain members. The common objective under centralization strengthens the incentives for at least one agency to conduct an audit, but it may also induce the lower-cost, less-capable agency to audit. Hence, centralized audits can be detrimental to performance regarding both food safety outcomes and system payoff. Managerial implications: Changing the auditing structure from decentralization to centralization may fail to improve food safety and system payoff insofar as it may replace one form of inefficiency with another. Addressing the new inefficiencies should be part of the ongoing effort to enhance the efficacy of centralized audits. History: This paper has been accepted for the Manufacturing & Service Operations Management Special Section on Responsible Research in Operations Management. Funding: The work of D. Shi was supported by the National Natural Science Foundation of China [Grant 72102205]. Supplemental Material: The online supplement is available at https://doi.org/10.1287/msom.2021.1058 .

Product failure resulting from sourcing supplier’s defective component has compelled a brand owner to enhance quality management, especially when the supplier has informational advantage. In this article, we examine a brand owner’s problem of screening a certain supplier’s inherent quality level with an attempt to induce supply chain partners’ quality efforts using the warranty contract based on information acquired from inspection technology. A supplier’s inherent quality level is herein determined by the private information held by the supplier and is typically characterized as an uncertain variable. The optimal warranty contracts and the expected profits of the brand owner and the supplier are derived from four different scenarios under the framework of uncertainty theory and principal–agent theory. We find that under the condition of pure double moral hazard or pure adverse selection, the first-best outcomes can be achieved without incurring agency cost under the designed contract. However, double moral hazard combined with adverse selection often leads to underinvestment in quality efforts as the supplier can shirk by misreporting her type. Consequently, we present the menu of warranty contracts to screen the supplier’s private information. Finally, we provide empirical managerial recommendations on mitigating potential adverse impacts caused by information asymmetry, supported with numerical investigations.

Using a sample of China’s A-share listed companies from 2012 to 2019, this paper studies the impact of employee stock ownership plans (ESOPs) on corporate financialization. We find that the implementation of ESOPs has a significant inhibitory effect on corporate financialization, and a series of robustness checks indicate that the conclusion is valid. The mechanism tests show that ESOPs decrease corporate financialization by reducing management agency costs and improving internal control. Heterogeneity analyses indicate that ESOPs in firms with higher financing constraints, a lower external audit quality, and higher proportions of executive shareholdings and self-funded employee equity have a much stronger decreasing effect on corporate financialization.

This study aims to examine the impact of minority investor protection mechanisms on agency costs. All relevant indicators of minority investor protection adapted from the World Bank’s annual ‘Doing Business’ reports, along with concentrated government ownership, are employed with a panel data sample of 135 Vietnamese listed firms during the period 2014–2018. It is found that the following mechanisms are effective in mitigating agency costs and hence agency problems at the firm level: 1) review and approval requirements for related-party transactions; 2) minority shareholders’ ability to sue and hold directors liable for their duties; 3) minority shareholders’ access to internal corporate documents; 4) investors’ rights to approve major corporate investment and sale of asset decisions; and 5) disclosure in annual reports of salaries, bonuses and other forms of remuneration to directors and management. Interestingly, board independence and controlling government shareholders are not confirmed to play significant roles in addressing agency problems. To the best of the authors’ knowledge, this is the first attempt at testing for the impact of minority investor protection mechanisms developed by the World Bank on agency costs at the firm level, hence providing empirical evidence for the adoption of the minority investor protection mechanisms promoted by the World Bank. This study also provides policy implications for selecting effective mechanisms to mitigate agency conflicts between controlling shareholders and minority investors in order to enhance the financial performance of firms in an Asian emerging market.

Firms compensate managers to maximize shareholder value, yet these same incentives affect bondholder risk. We investigate the relation between executive equity pay and the cost of debt. Our findings indicate a “u-shaped” relation between bond yields and equity pay. These results are consistent with the notion that bondholders prefer a moderate amount of executive equity pay and above or below that level, bondholders increase yields to protect their interests. These findings suggest that moderate levels of equity pay mitigate the agency costs between firm shareholders and bondholders.

Despite the advantages of debt, a significant number of firms that have an established leverage policy deliberately become all-equity. These firms eliminate a substantial amount of long-term debt as the average firm’s leverage ratio is approximately 30 percent at the year-end prior to debt elimination. Firm-level “shocks” such as CEO turnover and changes in credit ratings cannot explain the dramatic recapitalization decision. Consistent with the tradeoff theory, firms that eliminate debt have lower benefits (less tax shield benefits, agency costs) and higher costs (probability of financial distress, access to capital markets, etc.) of leverage in the three prior years compared to a matched sample. We also find that the factors influencing the decision to eliminate all debt is different from those to significantly reduce leverage or to have very low debt levels. Firms primarily finance the approximately $70 million of average long-term debt eliminated using proceeds from sales of relatively unproductive assets and from equity issues. Interestingly, over half of these firms issue significant amount of new debt within three years of becoming all-equity. Firms with lower liquidity and non-debt tax shields, higher potential overinvestment agency costs, and those that issue equity at the debt elimination year are more likely to relever quickly.

Firms avail themselves of external finance to manage obligations to pay dividends, along with other commitments. Indian firms, which have significant ownership concentration, present a unique opportunity for analyzing the influence of promoter holding on financed dividend payouts. This study also analyzes the dependence of standalone firms (i.e., those that are not part of a business group) on these financed dividends along with the firms in business groups. The study asserts that firm affiliation affects the decision on the type and extent of external capital used to finance payout. Promoter holding has a positive impact on debt as well as equity-financed payouts at standalone firms; the relationship is nonlinear and a higher proportion of promoter holding has a constraining effect on such payouts, supporting the agency cost theory. The size of the firm plays a significant role in firm decisions about financed payouts. Firms with lower operating cash flows and high leverage have a higher tendency to finance their payouts.

This study intended to examine the relationship between free cash flow and agency costs towards firm performance based on the data from 350 public listed companies in Malaysia. The data was collected from year 2005 to 2015. There is a need to re-examine the free cash flow hypothesis and the agency theory based on Malaysian data as the results from previous studies shown a mix results.The findings shown free cash flow is significantly giving positive impact on firm performance. This result is contradict to free cash flow hypothesis, but it can occur due to, when the availability of investments opportunities that can be generated when firm more free cash flow that later able to increase firm performance. Meanwhile, total asset turnover has a positive impact on return on asset. However, the operating expenses ratio demonstrates that the operating expenses ratio has a negative impact on return on asset. The mix findings of agency cost are supported by previous studies.

PurposeThis study aims to explore the extent to which companies rely on sustainability management control systems (SMCS) to translate corporate social responsibility (CSR) into superior performance building upon the premise of the natural resource orchestration perspective.Design/methodology/approachData were collected based on a survey data set from 118 Chief Financial Officers of publicly listed companies in Iran. The theoretical model was tested using partial least squares structural equation modeling (PLS-SEM, SmartPLS 3.0) as a method that enjoys minimum demands concerning normality assumptions and sample size.FindingsThe findings support the full mediation effect of SMCS on the relationship between CSR and organizational performance. This implies that CSR affects performance only through the mediating role of SMCS.Practical implicationsThe central premise in the proposed theoretical framework is that the utilization of proper management control mechanisms (i.e. SMCS) can help the organization to better synchronize, measure and manage – i.e. “orchestrate” – the social, environmental and economic impacts, and this, in turn, leads to improved organizational performance.Originality/valueTo the best of the authors’ knowledge, this is the first study of its kind, building on a unique synthesis of the agency cost perspective and resource orchestration theory, to introduce the “natural resource orchestration” approach for examining the intervening role of SMCS between CSR and organizational performance.

Effective corporate governance leads the way towards aligning the interest between managers and shareholders. Effectiveness of practicing the corporate governance of companies in Sri Lanka is debatable topic due to the variation between standard and actual practices. This study aims to examine the influence of board diversity on agency costs of companies listed in Sri Lanka as proposed by agency theory. The sample of this research consists of all companies listed in Sri Lanka, exclusive of bank and financial institutions which are practicing unique governance practices issued by Central Bank of Sri Lanka. The final sample consists of 180 companies during the period from 2013 to 2019. This study deployed panel regression analysis to test the relationship formulated in the hypotheses by using the EViews 9 software. The results showed that the board diversity-related variables such as separate leadership structure and presence of non-executive director on companies’ board are appeared to have significant influence on agency costs. Meanwhile, board size does not have direct impact on agency costs. The findings of this study regarding board diversity and agency costs have important managerial implications, that these findings are unlikely to the prediction of agency theory and best practices. Agency theory is not applicable to these companies, since the exiting corporate governance practices increase agency costs. The potential benefits of this study led to re-think the board of directors of the companies, managers, shareholder and the policymakers to re-organise the implementation of best practices.

To improve our understanding of the strategic role of the board in emerging market firms (EMFs), we investigate the role of the board’s human capital resource in a firm’s internationalization. Integrating the monitoring role (to reduce agency costs) and the resource provisioning role (to augment strategic resource base) of the board, we propose that the board’s aggregate education and professional experience influence the degree of international expansion of EMFs. Further, the board’s knowledge heterogeneity and skill heterogeneity play a contingent role from a resource orchestration perspective. Based on a dataset of 906 firm-years drawn from 201 Indian firms (2008–2012), we find support for the proposed hypotheses that the board’s aggregate education and professional experience have a U-shaped effect on international expansion, and that this relationship flips to an inverted U-shaped relationship at higher levels of knowledge and skill heterogeneity, respectively, within the board.

This study examines the effect of voluntary disclosure in annual reports on tax avoidance activities. The agency theory of tax avoidance suggests that tax sheltering is associated with important agency costs, underlining the importance of corporate governance mechanisms such as voluntary disclosure in shaping tax planning. Using a sample of 3448 firm-year observations of French listed firms over 2007–2013, the results show that voluntary disclosure is associated with lower tax avoidance activities, providing evidence that this disclosure can be seen as an effective monitoring tool that reduces the insiders’ likelihood to engage in rent extraction through tax avoidance activities. The results also indicate that the negative effect of voluntary disclosure on tax avoidance is significant only when family control is below 40%, suggesting that the disciplinary role of voluntary disclosure is limited to firms with relatively low family control levels. Overall, our findings are consistent with the agency theory of tax avoidance and highlight the important role of corporate disclosure in improving corporate governance.

This case study demonstrates how agency cost type 2 may lead to a conflict of interest between the promoters and the financial institutions. Proxy advisory firms further the cause of shareholder activism by addressing the dissonance so caused. They advise shareholders on the stance to be taken at the time of voting on important resolutions to be discussed in the General Body Meeting. This research case study explores how proxy advisory firms are playing an important role in promoting the cause of shareholder activism in the Indian context. It examines the role of a few Indian proxy advisory firms in foiling the attempt of Shriram Transport Finance Company (STFC) to re-appoint an independent director. Shareholder activism is relatively a less explored topic in academic research, especially in India. The authors, through this case study, wish to address this gap. The phenomenon studied in the case pertains to increased attention now being paid to reports of proxy advisory firms. Citing low attendance track record of a director in previous meeting, two Indian proxy advisory firms appealed to financial institutions to oppose the resolution to re-appoint him. Questioning his commitment and ability to devote time to the company affairs, they succeeded in thwarting the attempt of STFC to re-nominate Puneet Bhatia as director. The dilemma addressed in the case pertains to whether attendance in meeting can be a sole criterion for removing an independent director from the board. Secondary research among leading business publications unearthed major developments that have been captured in the case study. The case contributes to increasing the awareness of growing role of proxy advisory firms in India through a real example.

Purpose This study aims to examine the impact of corporate governance mechanisms on financial and non-financial aspects of firm performance in medium and large-scale manufacturing firms in Ethiopia. Design/methodology/approach The cross-sectional survey and simple random sampling methods are adopted while the data collection is through a questionnaire that covers five corporate governance indicators consisting of the board independence, board effectiveness, shareholders role, internal audit effectiveness (IAE) and disclosure and transparency. The dimensions of firm performance were indicated by six firm performance indicators of customer and market (CM), internal process (IP), differentiation, efficiency, competitive position (CP) and financial (organizational) performance (OP). The covariance-based structural equation modeling (SEM) with the maximum likelihood parameter estimation technique was used to perform the data analysis. Findings A significant positive relationship has been found between the independence of the board of directors and firm performance (especially with respect to differentiation, OP, CP and IP). However, the board of directors’ effectiveness showed an unexpected result, significant negative effect on differentiation, OP, CP, CM and IP. The study also indicates a positive significant effect of disclosure and transparency on differentiation, CP and OP. However, the coefficient on the CM construct of firm performance is negative and significant. A significant negative linkage has also been revealed between IAE and two constructs of performance: differentiation and CP. One of the important findings of the study is that shareholders’ role has a significant positive impact on both board characteristics (board independence and board effectiveness) and firm performance (differentiation, efficiency, CP and OP). Research limitations/implications The study has two potential limitations. First, in comparison to prior studies, this study is based on a small sample size which limits the generalizability of the findings. Different scholars have suggested (Anderson and Gerbing, 1984, 1988; Iacobucci, 2010; Hair et al., 2019) that SEM requires a large sample size to test the hypothetical model. Thus, future research can further investigate the link between corporate governance and firm performance by using a larger sample size to achieve more reliable results. Second, the current study used a quantitative approach only, but prior studies (e.g. Ahrens and Khalifa, 2013) suggest a qualitative approach to more investigate and reach a very conclusive idea on corporate governance. The approach is currently receiving growing popularity in the literature. Practical implications The findings of the study would have measurable implications for different stakeholders who are in the position of supporting or regulating manufacturing firms. First, the findings give a clue about how a firm can design a good corporate governance system. Second, managers of the firm can get a hint or tip from the result that might help as input for designing strategies. Finally, it might help policymakers to understand and think about the very crucial role of active participation of shareholders in curtailing/reducing agency cost and enhancing firm performance apart from (beyond) the conventional corporate governance mechanisms (board of directors, internal audit, disclosure and transparency). Originality/value This study seeks to extend and contribute to the current literature in several ways. First, in contrast to previous studies, this study used both financial and non-financial performance measures and thereby providing new empirical insights relating to the non-financial performance measures. Second, this study provides a new result that the role of shareholders has a direct significant positive impact on board characteristics (i.e. board independence and board effectiveness) and firm performance. Finally, this study has come with a new insight that disclosure and transparency is a major driver of firm performance.

Corporate finance decisions, measurement of accounting profits and market valuations are invariably made within the framework of a taxation system(s). Previous research indicates both ambiguity over the influence of taxation on managers’ behavior and limitations in the ability of shareholders to process tax information. The establishment of the UK’s Real Estate Investment Trust (REIT) regime in 2006 allowed quoted companies to opt out of company level taxation. We examine the reasonableness of managers and shareholders’ responses i.e. their ability to process information. When compared with shareholders, managers demonstrated a greater knowledge of the legislation, and of its applicability. For example, managers appeared to pre-empt the effects of the legislation. This should also act as a warning of the potential downside of increased cooperation between tax policy makers and taxpayers in trying to make more appropriately formed legislation. Further, managers appeared to be willing to trade off the interests of shareholders for their own personal gain which is surprising given the visibility of the REIT conversion process. Although shareholders were willing to pay less in such instances, their apparent inability to prevent this behavior illustrates the limitation of shareholder control over managers’ behavior. We find shareholders can accurately assess the general effects of the legislation but were unable, when combined with company information, to identify specific companies likely to benefit from the legislation. Without any increase in shareholder sophistication, concerns exist over the effectiveness of shareholders in acting as monitors of managers’ tax decision making and decision making more generally.

PurposeThis study aims to examine the effects of board gender diversity on agency costs in non-financial firms listed on the Pakistan Stock Exchange (PSX).Design/methodology/approachMultiple regression analysis is used to determine the impact of board gender diversity on agency cost. The research used panel data consisting of 2,062 firm-year observations of 226 non-financial firms listed on the PSX from 2008 to 2019 to test the proposed hypothesis. In addition, the Blau and the Shannon indices were used to checking for robustness.FindingsThe results indicate that female presence on the board significantly reduces the agency cost and, hence, mitigates the principal-agent conflict. Moreover, consistent with the critical mass theory, it was found that boards with three or more female directors have a stronger impact on reducing the agency cost, as compared to two or fewer female directors on the board.Research limitations/implicationsThe sample was restricted to non-financial firms listed on the PSX only; therefore, the results reflect the attributes of Pakistan’s business environment. A similar analysis in the context of other countries may generate different results.Practical implicationsThe findings imply that female directors play an important role in reducing agency conflicts between shareholders and managers by enhancing monitoring through effective governance mechanisms. The policymakers, therefore, should focus on female career development and encourage professional training programmes to generate a fair, competitive environment for senior female management.Originality/valueThis study attempts to fill the literature gap in that no similar study covers the non-financial firms’ listed firms in Pakistan. The paper supports the reforms made by the code of corporate governance by making the placement of female directors mandatory on Pakistani corporate boards. Overall, support is provided for the view that regulators should favour gender quotas regarding the composition of the board management team of listed firms to reduce agency conflicts and gain shareholder confidence.

The effect of board diversity on organisational performance has continued to be given attention by policymakers, non-governmental agencies, and academic communities. It has been established that boardroom diversity enhances the corporate boards’ monitoring capacity and mitigates the agency costs, which positively influences the firms’ performance. Despite the advantages of constituting diverse boards, the corporate governance framework guiding the operations of such firms does not contain any specific requirement on board diversity. Hence, empirical studies need to stress more on the relevance of boardroom diversity to firms’ value in the Nigerian context. Therefore, this paper examines the effect of board diversity on financial performance of the Nigerian listed firms. The study utilised the balanced panel data of 70 firms for a period of 8 years (2012 to 2019) using a two-step system generalised method of moments (GMM) framework. This study indicates a positive and significant relationship of board gender diversity (BGD) and Foreign directors (FD), with financial performance. However, the effect of CEO financial expertise on the firms’ return on assets (ROA), return on equity (ROE), and return on sales (ROS) appear positive but insignificant. Consequently, the Nigerian listed firms should attach more value to constitute a smaller board size with a considerable number of female and foreign directors to maximise their performance.

Using hand-collected governance data and a two-stage least squares approach to control for the endogeneity of firm governance structure, this paper shows that private investments in public equity (PIPE) issuers with higher board independence grant investors lower price discounts and experience improved announcement effects, improved long-run operating and stock performance, and increased investment. Board independence also encourages issuers to place more shares with venture capital investors, and fewer shares with managerial investors. These findings suggest that strong independent governance can mitigate the agency costs inherent in PIPEs.

Organization capital (OC) constitutes a firm’s unique, hard-to-mimic, hard-to-transfer culture, internal knowledge and language, policies and procedures, growth opportunities and information technology, brand name and any other aspects that are not directly related to the production process. In order to disentangle value enhancement from agency costs inherent in the OC, we calibrate systematic risk premiums from the loss of managerial OC rents by decomposing OC into: (1) portable economic rents in the form of disclosed executive compensation and (2) a strategic component comprised of undisclosed, non-portable OC rents mixed with agency costs. Shareholders in firms with high strategic component (not the portable component) earn an annual systematic risk premium of 4.6%. Disclosures revealing the breakdown between OC and agency costs in the strategic component (earnings surprises, managerial obfuscation and stock mispricing) as well as corporate governance eliminate this risk premium by revealing the OC rents in strategic component and increasing OC portability.

PurposeThis paper addresses the social value of commercial enterprises that are jointly owned by a government and private sector investors and where the shares are listed on a stock exchange: thus, “listed public–private enterprises” (LPPEs). The theoretical part of the paper addresses how differences in ownership patterns influence the behavior and performance of LPPEs.Design/methodology/approachWe develop a conceptual taxonomy, drawing on the empirical evidence on the behavior and performance of public–private hybrid enterprises and on the application of agency theory to that evidence. The taxonomy discussion predicts how different ownership patterns affect enterprise productive efficiency and the ability of governments to achieve social goals through LPPEs. We review the empirical literature on government enterprise ownership and on the concentration of private share ownership to deduce how these matter for owner and managerial behavior and productive efficiency. We review the literature that considers the informational content that listing of an enterprise's shares on a stock exchange can provide to enterprise owners, managers and other domestic audiences with a policy interest. We employ a social welfare perspective to derive policy implications as to when the LPPE governance structure is most appropriate.FindingsWe show how the monitoring and performance weaknesses of state ownership are offset by some private ownership, particularly when combined with listing on a stock exchange. We demonstrate the effects of different governance structures on enterprise productive efficiency. We find that the LPPE structure is particularly appropriate as an alternative to nationalization or to full privatization and regulation of natural monopoly public utilities, and as an alternative to full private ownership and taxation of non-renewable natural resource extractive enterprises.Originality/valueThis paper explicitly addresses the question of why and how the combination of government ownership, private investor ownership and listing on an exchange is socially valuable in providing information on productive efficiency to governments.

PurposeThe purpose of this study is to contribute to the debate in the literature about generalist CEOs by exploring the effect of board governance on CEO general managerial ability, focusing on one of the most crucial aspects of the board of directors, board size. Prior research shows that smaller boards constitute a more effective governance mechanism and therefore are expected to reduce agency costs.Design/methodology/approachThe authors estimate the effect of board size on CEO general managerial ability, using a fixed-effects regression analysis, propensity score matching, as well as an instrumental-variable analysis. These techniques mitigate endogeneity greatly and make the results much more likely to show causality.FindingsThe results show that firms with smaller board size are more likely to hire generalist CEOs. Specifically, a decline in board size by one standard deviation raises CEO general managerial ability by 15.62%. A lack of diverse experiences in a small board with fewer directors makes it more necessary to hire a CEO with a broad range of professional experiences. Furthermore, the agency costs associated with generalist CEOs are greatly diminished in firms with a smaller board. Hence, firms with a smaller board are more inclined to hire generalist CEOs.Originality/valueAlthough prior research has explored the effects of board size on various corporate outcomes, strategies and policies, this study is the first to investigate the effect of board size on CEO general managerial ability. This study contributes to the literature both in corporate governance and on CEO general managerial ability.

The company not only aims to seek profit, but also to maximize the prosperity of its shareholders by maximizing the value of the company. Within the company, there are three people who have different interests, namely, company owners, shareholders, and managers. When the company generates free cash flow, there will be differences in the interests of the parties who make the work contract and create a conflict that will cause the company to pay costs, which is called agency cost. The result of this difference in interest can also affect the company's financial performance because the company's finances are not going well. The purpose of this study was to determine the effect of free cash flow (FCF) on agency cost and financial performance in financial sector companies listed on the IDX in 2015-2016. The type of research used in the research is Explanatory Research, with a population of 83 companies listed on the Indonesian stock exchange in the financial sector in 2015-2016. The sampling technique used the purposive sampling method of as many as 61 companies listed on the Stock Exchange in the financial sector 2015-2016. The analytical tool used in this study is a simple regression test. Based on the results of the analysis, it is found that free cash flow (FCF) has a positive and significant effect on agency cost in financial sector companies listed on the IDX 2015-2016 of 33.7% and free cash flow (FCF) has a positive and significant effect on performance. finance by 34.0%.

The majority of the literature has focused on the impact of diversification on bank performance, while the research on the impact of diversification on bank costs is inadequate. Therefore, in this paper we empirically analyzed the impact of diversification on operating costs through a panel regression model, collecting the data of 47 Chinese commercial banks from 2005 to 2015. The empirical results showed that an increase in the non-interest income ratio significantly promoted a decrease in the cost–income ratio, and the robustness tests of different time intervals and different types of banks were consistent. This suggests that diversification effectively reduced the operating costs of banks by means of the sharing of information and equipment, the reduction of asset specificity, and the improvement of operation management synergy. This also indicates that excessive competition costs and the agency costs of diversification were lower. Further analysis showed that the diversification of national banks compared with local banks was more significant in reducing operating costs, and, for the national banks, the effects of economies of scope and scale were stronger. Diversified management strategies for local banks should be carefully promoted through the construction of strategic alliances, mergers and acquisitions, etc.

Understanding the association between quasi-indexer ownership and insider trading is important given the externalities that insider trading can impose on shareholders, the importance of quasi-indexers in the capital markets, and their mixed monitoring incentives. The prior literature has produced an inconsistent set of results regarding this association. These results are difficult to interpret because the association between them is likely endogenous, and prior studies have not employed effective identification strategies to address this issue. In this study, we examine the effects of quasi-indexer institutional ownership on insider trading using the plausibly exogenous discontinuity in quasi-indexer ownership around the Russell 1000/2000 index cutoff. Using both regression discontinuity and instrumental variable research designs, we find higher quasi-indexer ownership leads to less insider trading (both buys and sells) and less profitable sell trades. The effects for sells are concentrated among insider trades that, ex ante, are more likely to be based on private information. Our evidence on the profitability of buys is mixed. In addition, we find firms with higher quasi-indexer ownership are more likely to have and/or more strictly enforce blackout policies. Overall, our results suggest that quasi-indexers can reduce the agency costs associated with insider trading through their direct and indirect monitoring activities.

Penelitian ini bertujuan untuk mengetahui pengaruh Board Composition, Agency Cost, Likuiditas dan Leverage terhadap Financial Distress pada perusahaan manufaktur sektor aneka industry yang terdaftar di BEI tahun 2012-2016. Metode analisis yang digunakan adalah metode analisis linear berganda dan uji hipotesis dengan menggunakan data laporan keuangan perusahaan periode 2012-2016. Hasil Penelitian menunjukkan : 1) secara parsial, Board Composition tidak berpengaruh signifikan terhadap Financial Distress. 2) Agency Cost berpengaruh signifikan terhadap Financial Distress.3) likuiditas tidak berpengaruh signifikan terhadap Financial Distress .4) Leverage tidak berpengaruh signifikan terhadap Financial Distress.5) sedangkan, secara simultan Board Composition, Agency Cost, Likuiditas dan Leverage berpengaruh signifikan terhadap Financial Distres pada perusahaan manufaktur sector aneka industry yang terdaftar di BEI tahun 2012-2016. Koefisien determinasi (????2) atas variabel Board Composition, Agency Cost, Likuiditas, dan Leverage terhadap Financial Distres sebesar 70.20% .

Purpose The purpose of the study is to examine the relationship between the board of directors (BODs) and the Shariah board (SB) and assess its impact on the financial soundness of Islamic banks (IBs). Design/methodology/approach The authors use a regression model to test the effects of the relationship between the BOD and the SB on the financial soundness of IBs by applying a panel data set of 61 IBs, covering 18 countries from 2008 to 2014. The dependent variable is the Z-score indicator. To test the robustness of the results, the authors use dependent variables other than the Z-score [A rating of Capital adequacy (C), Asset quality (A), Management (M), Earnings (E), Liquidity (L), and Sensitivity (S) (CAMELS)] for 2018. Findings The results show that meetings between directors and SB members significantly reduce the financial soundness of IBs. The relationship between the BOD and the SB increases conflicts of interest and agency costs. However, a representation of the SB at the BOD meetings and vice versa does not affect financial soundness. The Accounting and Auditing Organization for Islamic Financial Institutions and the Islamic Financial Services Board corporate governance standards do not require the presence of the SB representative at the BOD meetings or vice versa, which justifies the results. Practical implications This study attempts to fill gaps in the literature by investigating the impact of meetings between the SB and the BOD on the financial soundness of IBs across the world. The results suggest that the BOD’s frequent interference in the affairs of the SB can have adverse effects on IBs and should be avoided. Originality/value The authors depart from the previous literature by using three new characteristics that link the BOD to the SB. Methodologically, the authors use three new measures to evaluate this relationship and its effect on the financial soundness of IBs. This study is unique because it explores the comparative impacts of the presence of a SB representative at the BOD meetings and a director at the SB meetings and meetings between the two governing boards of IBs.

Motivation: Dividend pay-out is a frequently undertaken research issue. However, there is no study on the impact of concentrated ownership on adjustment of dividend amount to investor sentiment for pay-outs. The paper contribute to the literature by filling the research gap regarding the catering effect in the context of principal-principal agency conflict and type II agency costs, monitoring hypothesis and expropriation hypothesis. Aim: The aim of the article is to investigate an impact of the first and second-largest shareholders on an adjustment of dividend pay-outs to investor sentiment for dividends. To achieve the aim, two hypotheses have been formulated, i.e. H1: if the first-largest shareholder is a strategic investor, a catering effect weakens; H2: an existence of significant second-largest shareholder moderates the extent to which companies cater to investor sentiment for dividends. Results: There are three main finding: 1) the number of shares held by the first-largest shareholder is lower in dividend payers, while the number of shares held by the second-largest shareholder is lower in dividend non-payers; 2) listed companies from electromechanical industry sector cater to investor sentiment for dividends; 3) both research hypotheses have not been satisfied.

This research was conducted to examine whether agency cost can be influenced by the board of commissioners, audit committee, company size, and capital structure. This seeks to contribute to the literature of factors influencing agency cost in Indonesia. Agency cost exists because of some assymetircal information and conflicts between principal and agent. The study used descriptive method of which purposive sampling method was used in sample selection. The samples were selected from the top 100 largest wealth-creators companies in 2019 in Indonesia. Using the wealth-creators companies as the samples makes this research a unique one. The classical assumption test was conducted to check the relationship between variables. Data gathered were analyzed and interpreted using multiple regression analysisof which t-test and F-test were considered. The study revealed that agency cost was simultaneously influenced by the board of commissioners, audit committee, company size, and capital structure. Partially, this study found that board of commissioners and company size have siginificant influence on agency cost, while audit committee and capital structure have no influence on agency cost. The findings indicate that there are several factors that influences agency cost. Thus, agency cost can be minimized by proper monitoring by the presence of board of commissioner; while company size and capital structure trigger agency costs.

This paper aims to investigate the link between agency costs mitigation via three levels of rights protection (minority rights protection, enforcing contracts, resolving insolvency issues) provides the propitious climate for financing investment opportunities around the world.,We use Bartlett’s three-group method to stratify countries based on how well they protect investors as measured by the scores provided in the Doing Business dataset developed by the world bank for 189 countries. We then test a variety of independent hypotheses that the alleviation of agency costs via three levels of protection (minority investors’ rights, contract enforcement, resolving insolvency issues) is associated with better access to credit via the banking system, better valuation of listed firms via the stock market and higher investment and growth.,Our findings support Agency Theory which explains why the absence of legal protection of external investors leads to stock markets and financial institutions failing to fulfill their role of financing the economy.,The policy implication from this study indicates that countries ought to (1) develop legislation that protects investors’ rights, (2) improve the quality of their judicial system in terms of enforcing the legislation and (3) build the framework for resolving disputes during insolvency as these are important ingredients for a developed financial system.,We use the World bank dataset and a new methodology to quantify the significance of the relationship between minority rights protection, ineffective enforcement, lack of bankruptcy laws and access to firm financing via the banking sector and the stock market. It provides new evidence that the quality of the judicial system in a country matter for firms’ ability to raise financing and enhance value creation.,本文旨在探討一個假設，該假設為透過三級別權利保障（保障少數群體的權利、執行合同、解決破產問題）的代理成本緩減會為世界各地的金融性投資機會提供良好的氣侯。,我們以巴特利特（Bartlett）的三組法把國家分組，分組方法是基於該國家保障投資者的程度，而保障程度是以世界銀行為189個國家而制定的營商資料集內提供的評分來衡量的。我們把國家分組後，便就各樣的獨立假設進行測試。這些假設是：透過三級別保障（保障少數股權投資者的權利、合同的執行、解決破產問題）的代理成本緩減是連繫於透過銀行系統而產生的更佳信貸途徑，透過股市的更佳上市公司估值及更高的投資和增長。,研究結果証實了代理理論，該理論說明為何當外來投資者沒有得到法律保障時，結果會導致股票市場和金融機構不能履行其為經濟提供資金的角色。,本研究具有政策方面的意義，因研究顯示了國家應該：（1）設立保障投資者權利的法律；（2）在執行法律方面，改善其司法系統的素質；（3）建立解決破產時爭議的體系。這些是應該做的，因它們是一個已發展的金融體制的重要元素。,本文強調了一個保障投資者權利的法律環境所需的三個特定要素：對少數股權投資者權利的保障、有效的執行、有效的破產法律及透過銀行部門和股票市場而取得公司融資。這提供新的證據, 證實這三級別權利保障對公司籌集資金及提高價值創造的能力而言至為重要。

One of the reasons why a firm chooses to go private is the significant amount of cash flows which can exacerbate agency costs: this can indicate poor growth opportuni- ties and make external resources less required. In line with both knowledge economy and financial literature, the paper aims to indagate the relationship between agency costs, firm’s performance, and delisting. Despite there is evidence in finance that highlights the role of exchange regulators in the going private processes, just few studies focus on the voluntary delisting and its antecedents. Starting from the knowl- edge economy setting, this paper aims to define how firm’s financial performance moderates the relationship between agency costs and delisting choices. Based on a sample of non-financial firms delisted from the most important European stock mar- kets between 1997 and 2017, we applied an OLS regression to analyze the main var- iables that influence the going private processes. We find that a high level of stock market performance, associated with high level of free cash flows, promotes going private as a means of anticipating and preventing future value decreases. Finally, the paper provides practical implications for the development of new approach of delist- ing choice.

PurposeThis paper aims to examine whether agency costs predict disciplinary takeover likelihood for the UK listed companies between 1986 and 2015.Design/methodology/approachUsing survival analysis, the approach is to identify candidates for disciplinary takeover on the basis of Tobin’s Q (TQ), which is consistent with the approach advocated by Manne (1965). This study then examines how indicators of agency costs affect takeover likelihood within the set of disciplinary candidates.FindingsThis paper provides evidence of the effectiveness of TQ, rather than excess return, in identifying disciplinary takeover candidates. Takeover hazard for disciplinary candidates is higher for companies with higher levels of asset utilization and sales growth in particular. Companies with stronger agency problems are relatively less susceptible to disciplinary takeover.Practical implicationsGiven the UK context of the study, where anti-takeover provisions are disallowed and when compared to findings of US studies, the results imply some support for the effectiveness of an open merger policy.Originality/valueWhile the connection between takeover likelihood and the market for corporate control has been made in previous studies, the study adopts a more explicit agency theory framework than previous studies of takeover likelihood. A key component of the contribution follows from differentiating candidates for disciplinary takeovers from other forms of mergers and acquisitions.

The purpose of this research is to determine the effect of agency cost, ownership structure, signaling, investment opportunities, size, financial leverage, and profitability on dividend policies on public companies listed on the Indonesian Stock Exchange (IDX) period 2014 - 2019. This research sample uses the entire list of companies listed on the Indonesian Stock Exchange period 2014 - 2019. The data analysis method used is tobit regression. The results of this research analysis suggest that agency cost, ownership, investment opportunities, size, financial leverage, and profitability have a significant effect on dividend policy on companies listed in IDX period 2014 - 2019.

We examine the impact of independent directors’ reputations on executive pay-performance sensitivity. Using hand-collected data from listed Chinese companies from 2012 to 2017, we find a positive association between independent directors’ reputations and pay-performance sensitivity that is more pronounced in companies with less concentrated ownership. Further, the results show that reputable directors have a stronger influence on pay-performance sensitivity when they sit on a remuneration committee, are in state-owned enterprises, and are in companies with higher agency costs. Our results highlight the monitoring role of reputable independent directors in setting effective executive compensation contracts.

The current study seeks to investigate the relationship between ownership structure concentrations and commercial banks financial performance in one of emerging market (Bahrain). The current study employed panel regression analysis from 2015-2019 estimate the relationships between dependent and independent variables. The findings revealed that there is a positive impact of family, government and institutional ownership on financial performance measured by return on equity. Meanwhile, there is negative impact of family and institutional ownership on financial performance measured by earnings per share and a positive relationship with government ownership. The findings confirmed that the corporate governance implementation and a good ownership structure play a vital role in firm’s financial performance through reducing the agency cost. However, the current study suggests for future researches to examine other dependent and independent variables with extension the study duration and tackles other uncovered sectors in this study.